GROWTH IN tax revenues fell back in May but remained in positive territory, according to figures released by the Department of Finance.
The weaker than expected returns in May caused the department’s revenue projections for the year to date to veer off course very slightly. In the first five months of the year, revenues of €12.8 billion were collected. This was €70 million below projections. At the end of April, revenues were €108 million ahead of projections.
Much of the increase is the result of higher tax rates introduced in the budget and a reclassification of revenues associated with the universal social charge, rather than higher levels of economic activity. The €12.8 billion in revenues collected in the January-May period amounted to an increase of almost €600 million on the same period of 2010.
However, other developments, most notably on the spending side, more than offset the growth in tax revenues. As a result, the imbalance between revenues and spending continued to growt. In May, the exchequer deficit grew by more than €320 million to reach more than €10 billion for the first five months of the year.
The deficit thus far in 2011, however, is €300 million lower than the department projected in the budget, according to a spokesman.
In the first five months of 2010, the cumulative deficit stood at €7.9 billion. By far the largest contribution to the increased deficit came from payments on promissory notes issued by the Government to support the banking system. The payment amounted to more than €3 billion.
All three of the large spending departments registered higher outlays in the first five months of the year. The Department of Health and Children saw expenditure increase by 9.5 per cent in the first five months of the year to reach €5.7 billion. The Department of Social Protection spent €5.2 billion over the same period. That amounted to a 14.7 per cent year-on-year increase in spending. The Department of Education and Skills spent €3.6 billion in the January-May period. This was a 6.2 per cent increase on the same period in 2010.
Capital spending, which is mostly accounted for by public investment in infrastructure, continued to decline. It also continued to come in below projections. This trend has been in evidence for some time. In the first five months of the year, capital spending fell by almost €100 million to € 786 million. Total debt servicing costs grew by €700 million year-on-year to reach a total of €2.6 billion.
Simon Barry, chief economist with Ulster Bank Capital Markets, said “it remains the case that the public finances are performing in line with expectation” but that there were some signs of weakness in the most recent indicators of economic activity at home and abroad. This “highlights the fact that Irish economic outlook continues to face some downside risk, implying corresponding risks to the exchequer revenue profile”.
“The failure by Government to meet its own capital investment targets, as revealed by the exchequer returns for the five months of the year, is one of the reasons for the continuing rise in unemployment in the Irish economy,” the Construction Industry Federation said.
